Friday, October 11, 2013

Recent Buy: XOM

Oct 10, 2013: Bought 30 shares of XOM at $85.18 per share.

ExxonMobil Corp. (XOM) is the world's largest publicly traded international oil and gas company. Founded in 1882 and based in Irving, TX, XOM is engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. Approximately 83% of Exxon's earnings come from its operations outside the United States.

XOM is a Dividend Champion with an impressive 31-year streak of dividend increases. It pays quarterly dividends of $0.63 per share in March, June, September and December. Starting Yield on Cost is 2.96%.

XOM easily outpaced the S&P 500 over the last 10 years, essentially doubling its returns of 63%:


XOM's earnings per share has moved steadily upwards, with the exception of a noticeable dip in 2009. However, because dividends are more than adequately covered by earnings, XOM managed to grow its dividend steadily despite the dip in 2009 earnings:


Analysis of XOM


Fair value estimates for XOM range from $81.71(Graham Number) to $97.00 (MorningStar), with a median of $86.76. Compared with the median, XOM is discounted by about 5.5%.

The following table provides some key statistics for XOM:
The sum of XOM's dividend yield and its 5-yr dividend growth rate is 12.70%, just above the 12% required by the Chowder Dividend Rule. Additionally, XOM passes the following of my selection criteria:
  • Debt to Equity ratio is 12% (below 50%)
  • 7-year weighted average dividend growth rate is 10.04% (at least 7%)
  • Forward P/E ratio is 10.72 and the trailing twelve month (TTM) P/E ratio is 10.87 (below 16)
  • Dividend payout ratio is 31.74.% (below 65%)
XOM's estimated 5-year total payback percentage is 14.82%, somewhat less than my 16% target.

XOM appears at the top of my October dashboard as a 7-star stock: (*******)

Other ratings for XOM


 Zacks Rating  3 Hold
 S&P Capital IQ's Stock Report  (*****) Buy
 MorningStar Rating  (*****)
 The Motley Fool's CAPS Rating  (*****)
 Thomson Reuters's StockReport+  (5/10) Neutral 

Concluding Remarks


XOM is attractive for several reasons. Not only does it have a long track record as a core holding for investors seeking dividend growth, but it is also returning value to shareholders through significant share buybacks. Since 2000, XOM has reduced their outstanding shares by 35%. In 2012 alone, its share buybacks totaled $20 billion.

The company has an AAA credit profile and is in excellent financial health. Free cash flow generation is strong, and with a low dividend payout ratio of 32%, XOM can easily sustain its track record of dividend growth. Its 10-year dividend growth rate is 9% and its most recent raise is 10.5%.

XOM has a fairly active investment program. It plans to spend about $185 billion over the next five years, up 29% during the last five-year period. The capital expenditure covers some 21 oil and gas projects and targets the accumulation over one million net oil-equivalent barrels per day by 2016.

Some concerns include a disappointing earnings report in the second quarter of 2013, and decreasing production volumes for 8 straight quarters. With natural gas accounting for almost half of XOM's second-quarter 2013 production, the tempered outlook on natural gas prices could adversely impact the company's earnings, returns, cash flow and balance sheet.

Nevertheless, I feel the growth outlook for XOM is strong and its capital projects should start improving production volume.

30 shares of XOM represent $75.60 of expected annual dividend income, which increases DivGro's projected annual dividend income to $1,841.79.

XOM is the 16th dividend stock purchase for DivGro.

Full Disclosure: Long XOM

2 comments :

  1. I've noticed several people buying XOM. It would be high on my list if I wasn't already heavily invested in the Energy space. I'm sure you'll do well with purchasing at these prices.

    ReplyDelete
    Replies
    1. I'm overweight in Energy myself and only invested in 6 of 10 sectors. I prefer buying at a discount, versus buying at a premium to diversify. Essentially, I'm going to be relying on sector rotation over time to improve my diversification.

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